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Keynesian vs Monetarist Economics

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Questions and Answers

What is the Keynesian perspective on the primary cause of recessions?

Aggregate demand being lower than potential output (correct)

Inflation eroding consumer purchasing power

Wage and price flexibility resulting in overproduction

Excessive investment leading to market saturation

According to monetarists, what is the most effective tool for managing the economy?

Taxation strategies to boost consumer spending

Government intervention through fiscal policy

Regulatory measures to control businesses

Monetary policy to manage the money supply (correct)

How do Keynesians view the concept of wage and price stickiness?

It allows for adaptive pricing strategies that stabilize the economy

It contributes to increased consumer confidence

It causes slow adjustments, maintaining supply and demand gaps (correct)

It leads to immediate market corrections

What role does fiscal policy play in Keynesian economics?

<p>Stimulate aggregate demand and promote employment</p> Signup and view all the answers

What is a key concern of monetarists regarding monetary policy?

<p>It should maintain stable prices to avoid inflation risks</p> Signup and view all the answers

Study Notes

Keynesian Economics

Recessions are caused by insufficient aggregate demand, leading to unemployment
Wages and prices are "sticky" and do not always adjust quickly to changing demand
Monetary policy has limited effectiveness in stimulating demand during recessions
Fiscal policy, like government spending, is crucial to stimulate demand and boost employment

Monetarist Economics

Focuses on the importance of monetary policy for economic management
Monetary policy is the primary tool for addressing macroeconomic instability like inflation and recessions
Level of aggregate demand is affected by expected profitability, which spurs investment
Stable prices are a key goal, achieved through careful use of monetary policy

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Description

Explore the fundamental differences between Keynesian and Monetarist economics in this quiz. Learn how each theory approaches issues like recessions, aggregate demand, and the effectiveness of monetary and fiscal policies. Test your knowledge on these vital economic concepts.